ISLAMABAD (Kashmir English): The tax authorities in Pakistan have received orders to provide builders and developers with withholding tax exemption certificates within seven days after the developers have paid their taxes according to the special tax regime.
The Federal Board of Revenue (FBR) issued Circular No. 08 of 2025-26 (IR-Policy – Income Tax) to explain how taxpayers fall under the withholding tax rule of Section 236C from the Income Tax Ordinance 2001, which applies to Section 7F taxpayers.
The circular requires the Commissioners of Inland Revenue to follow strict rules which determine when they must deliver exemption certificates to applicants.
The exemption certificate will be automatically processed when an applicant meets all requirements and submits a complete application because the Commissioner failed to act within seven working days.
The clarification replaces Circular No. 7 of 2025-26 IR-Policy, which was issued on March 31, 2026, and it responds to concerns that builders and developers raised about advance tax collection on property transactions.
The special tax regime under Section 7F establishes fixed income assessment rules for specific builders and developers, which determine their taxable income based on a fixed gross receipts percentage instead of standard profit measurement methods.
Industry stakeholders had argued that withholding tax under Section 236C—which developers must pay as a tax through operational expenses—creates liquidity pressure for developers operating under this regime.
Taxpayers must pay taxes on profits from Section 7F activities because these profits are treated as business income. This leads to taxpayers suffering additional cash-flow difficulties when they deduct amounts under Section 236C, which results in cash-flow difficulties for taxpayers who lack other taxable income that can be used to offset the tax expense.
